Dollar Says Let the Golden Goose Live: Onsite Coverage

BOSTON — Former NCUA Board Member Dennis Dollar weighed in on a speech by current NCUA Chairman Debbie Matz on Friday in which she revealed new details regarding a proposed risk-based net worth rule under development by the regulator. The proposed rule is expected by year-end.

During a breakout session on mergers at the NAFCU Annual Conference, Dollar broke off topic and said he supports the need for a rule that would build upon the current 7% net worth requirement for well capitalized credit unions.

However, he also said he hopes the NCUA will approach the rule from both ends, allowing low-risk credit unions more authorities while requiring more net worth of credit unions with more risk on their balance sheets.

For example, Dollar said, maybe a credit union that has a lower risk profile would be allowed more blanket waivers for member business loans.

Additionally, he pointed out that while smaller credit unions have less risk and higher net worth, they also generate far less return on average assets than large credit unions.

He shared statistics from the NCUA that revealed as of Dec. 31, 2012, credit unions with less than $10 million in assets average 14.65% net worth but generated negative ROAA of -0.02%.

Comparatively, credit unions with more than $500 million in assets averaged 10.17% net worth, and presumably have riskier balance sheets. However, those large credit unions averaged a positive ROAA gain of 1.02%.

“One of the fallacies in the risk-based capital scenario is that small credit unions would almost all be low risk under the risk-weighted calculation, but yet they are all losing ROAA,” he said. “Meanwhile, high-risk credit unions are making 1.02%.”

He cautioned against putting so many restrictions on credit unions that take risk but earn good profit margins that they reduce earnings, saying “you don’t want to kill the goose that’s laying the golden eggs for credit unions.”

Further, Dollar said, earnings are the only way credit unions can build net worth.